Debt financing clause: Copy, customize, and use instantly
Introduction
A debt financing clause outlines the terms and conditions under which a company raises capital through the issuance of debt instruments, such as bonds, loans, or promissory notes. This clause specifies the interest rate, repayment schedule, security, and other terms governing the debt arrangement.
Below are templates for debt financing clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard debt financing clause
This version outlines basic terms for debt financing.
The [Company] agrees to raise capital by issuing a debt instrument in the amount of [$X]. The loan will bear an interest rate of [X]% per annum and will be repaid in equal quarterly installments over a period of [X] years, starting on [Date].
Debt financing clause with secured debt
This version includes secured debt terms.
The loan shall be secured by [Company]’s [property, assets, or other collateral], and in the event of a default, the lender shall have the right to seize and liquidate the collateral to satisfy the debt.
Debt financing clause with subordinated debt
This version includes subordinated debt provisions.
The debt issued under this financing shall be subordinated to all senior debt obligations of the [Company], and the lender shall have no claim on the [Company]’s assets until senior debts are fully satisfied.
Debt financing clause with interest rate adjustment
This version includes an interest rate adjustment mechanism.
The interest rate on the debt will initially be [X]% per annum, but may be adjusted every [X] months based on changes to the [relevant financial index or benchmark rate], with a cap of [X]% per annum.
Debt financing clause with repayment flexibility
This version includes flexibility in repayments.
The [Company] shall have the right to make early repayments of the debt, without penalty, subject to the following conditions: [list conditions or maximum prepayment amount].
Debt financing clause with default provisions
This version includes provisions for default.
In the event of a default by the [Company], defined as [failure to make a payment, breach of covenants, etc.], the lender may declare the entire debt immediately due and payable, and may exercise any available legal remedies.
Debt financing clause with debt covenants
This version includes specific covenants.
The [Company] agrees to comply with the following debt covenants: [list covenants such as maintaining a minimum cash balance, debt-to-equity ratio, or meeting specific performance targets]. Breach of these covenants will result in default under the debt agreement.
Debt financing clause with fixed repayment schedule
This version includes a fixed repayment schedule.
The debt shall be repaid in fixed monthly payments of [$X], starting on [Date], with the final payment due on [Date]. The loan term shall last for [X] years.
Debt financing clause with unsecured debt
This version outlines terms for unsecured debt.
The debt issued under this agreement is unsecured and does not require any collateral or guarantee from the [Company] or its affiliates. The lender’s rights are limited to the terms outlined in this Agreement.
Debt financing clause with revolving credit
This version includes a revolving credit facility.
The [Company] may borrow up to [$X] under a revolving credit facility, with interest accruing on the outstanding balance at an interest rate of [X]% per annum. The loan balance may be re-borrowed as payments are made.
Debt financing clause with floating interest rate
This version includes a floating interest rate.
The interest rate on the loan will be calculated based on the [X index], plus a margin of [X]%, and will adjust quarterly according to changes in the base rate.
Debt financing clause with loan conversion option
This version allows for loan conversion to equity.
The lender has the option to convert the outstanding loan balance into [Company] equity at a conversion price of [$X] per share, subject to a conversion period of [X] months from the loan issuance date.
Debt financing clause with early termination option
This version includes an early termination provision.
The [Company] has the option to repay the entire debt amount early, provided that a penalty of [X]% of the remaining balance is paid in addition to the principal and accrued interest.
Debt financing clause with specific loan usage
This version specifies the use of the loan.
The loan proceeds must be used exclusively for [specific purpose], and the [Company] agrees to provide regular updates and documentation showing that the funds are being used as intended.
Debt financing clause with lender’s right to accelerate debt
This version gives the lender the right to accelerate the debt.
If the [Company] experiences a change of control, insolvency, or other specified event, the lender has the right to accelerate the loan, making the entire balance immediately due and payable.
Debt financing clause with cross-collateralization
This version includes cross-collateralization provisions.
The loan shall be cross-collateralized with other assets of the [Company], meaning that any defaults on other loans or debts will trigger defaults on this loan and vice versa.
Debt financing clause with senior debt priority
This version grants senior debt priority.
The lender agrees that the loan issued under this Agreement shall rank senior in priority over all other unsecured debt obligations of the [Company], with respect to both repayment and claims on assets in the event of liquidation.
Debt financing clause with limitation on additional debt issuance
This version limits future debt issuance.
The [Company] agrees not to issue any additional debt securities that would rank senior to the loan issued under this Agreement without the prior written consent of the lender.
Debt financing clause with guarantee from parent company
This version includes a guarantee from the parent company.
The loan issued under this Agreement is guaranteed by the parent company of the [Company], and in the event of default, the parent company agrees to satisfy the debt obligation.
Debt financing clause with personal guarantee
This version includes a personal guarantee.
In addition to the corporate guarantee, the debt issued under this Agreement is personally guaranteed by [Key Individual], and in the event of default, [Key Individual] will be liable for the repayment of the loan.
Debt financing clause with conditional interest payments
This version includes conditional interest payments.
Interest on the loan shall be deferred and payable only if the [Company] achieves certain financial milestones, including [list conditions]. If these milestones are not met, interest will accrue but will not be payable until the conditions are fulfilled.
Debt financing clause with interest deferral
This version includes interest deferral provisions.
The [Company] has the option to defer interest payments on the loan for up to [X] months, provided that the deferred interest will accrue and be added to the outstanding principal balance.
Debt financing clause with borrowing base
This version includes a borrowing base.
The [Company] may borrow up to [X]% of the value of its eligible receivables, inventory, and other assets, as determined by the lender, with the total borrowings subject to the borrowing base.
Debt financing clause with payment-in-kind interest
This version allows for payment-in-kind interest.
Interest on the loan may be paid in kind, with the [Company] issuing additional debt instruments or equity to the lender in lieu of cash payments.
Debt financing clause with security interest in specific assets
This version provides a security interest in specific assets.
The loan will be secured by a security interest in the [Company]’s [specific assets, e.g., equipment, intellectual property], and the lender will have the right to take possession of these assets in the event of default.
Debt financing clause with restrictive covenants on expenditures
This version includes covenants on expenditures.
The [Company] agrees not to incur any expenditures greater than [$X] without the prior written consent of the lender, except for [list exceptions, e.g., routine operational costs].
Debt financing clause with financial reporting requirements
This version includes financial reporting requirements.
The [Company] shall provide the lender with quarterly and annual financial statements, including balance sheets, income statements, and cash flow statements, prepared in accordance with generally accepted accounting principles (GAAP).
Debt financing clause with negative covenants
This version includes negative covenants.
The [Company] agrees not to take certain actions without the lender's approval, including [list restricted actions, e.g., taking on additional debt, selling assets, paying dividends].
Debt financing clause with lender's approval for business expansion
This version requires lender approval for expansion.
The [Company] agrees to seek the lender's approval before making any significant business expansion, including entering new markets or launching new products, if the expansion could affect the [Company]’s ability to repay the debt.
Debt financing clause with trigger for early repayment
This version specifies a trigger for early repayment.
If the [Company] experiences a significant increase in revenue or raises additional equity financing, the lender may require the early repayment of [X]% of the loan balance.
Debt financing clause with cross-default provision
This version includes a cross-default provision.
If the [Company] defaults on any other debt or financing agreement, the lender may declare the loan under this Agreement to be in default and accelerate repayment of the entire loan.
Debt financing clause with mandatory prepayment for excess cash
This version includes a mandatory prepayment provision.
If the [Company]’s cash balance exceeds [$X] at the end of any quarter, the [Company] shall make a mandatory prepayment of the loan equal to [X]% of the excess cash.
Debt financing clause with right to modify interest rate
This version allows modification of the interest rate.
The lender has the right to modify the interest rate on the loan after [X] years, based on changes in market interest rates, but the rate shall not exceed [X]% per annum.
Debt financing clause with periodic interest rate review
This version includes a periodic interest rate review.
The interest rate on the loan shall be reviewed every [X] months and adjusted based on prevailing market conditions, but the rate will not exceed [X]% per annum.
Debt financing clause with performance-based debt forgiveness
This version includes performance-based debt forgiveness.
If the [Company] achieves certain financial milestones, such as [e.g., revenue targets, EBITDA goals], the lender may forgive up to [X]% of the outstanding loan balance.
Debt financing clause with lockbox arrangement
This version includes a lockbox arrangement.
The [Company] agrees to establish a lockbox account, where all proceeds from the [Company]’s operations will be deposited. The lender will have control over this account to ensure the loan is repaid.
Debt financing clause with revolving credit limit
This version includes a revolving credit limit.
The [Company] is granted access to a revolving credit facility up to a limit of [$X]. The [Company] may borrow, repay, and re-borrow under this facility as needed, provided that the total borrowings do not exceed the credit limit.
Debt financing clause with covenant-lite structure
This version includes a covenant-lite structure.
The debt issued under this Agreement shall have minimal financial covenants, with no requirements for the [Company] to maintain certain financial ratios or metrics, unless otherwise agreed by the lender.
Debt financing clause with debt issuance at a discount
This version includes a debt issuance at a discount.
The lender agrees to purchase the debt securities at a discount to the face value, such that the loan proceeds received by the [Company] will be less than the nominal loan amount.
Debt financing clause with automatic renewal of loan terms
This version includes automatic renewal of loan terms.
The loan term will automatically renew for additional [X]-month periods unless either party provides written notice of termination [X] days before the end of the current term.
Debt financing clause with right to assign debt obligations
This version grants the right to assign debt obligations.
The lender has the right to assign all or part of the debt obligations under this Agreement to a third party, without the prior consent of the [Company], provided that the lender remains liable for any breaches of this Agreement.
Debt financing clause with restriction on asset sales
This version includes a restriction on asset sales.
The [Company] agrees not to sell or dispose of any substantial assets, including [specific assets], without the lender’s consent, except in the ordinary course of business.
Debt financing clause with requirement for insurance coverage
This version includes an insurance requirement.
The [Company] agrees to maintain insurance coverage for its assets, operations, and key executives, naming the lender as a loss payee on all relevant policies, to secure the debt obligations.
Debt financing clause with penalty for early repayment
This version includes a penalty for early repayment.
If the [Company] repays the debt before the maturity date, a prepayment penalty equal to [X]% of the principal amount will be assessed, except in cases of refinancing or exit events.
Debt financing clause with right to approve additional indebtedness
This version gives the lender the right to approve additional debt.
The [Company] agrees not to incur any additional indebtedness, either secured or unsecured, without the prior written consent of the lender.
Debt financing clause with restriction on dividend payments
This version restricts dividend payments.
The [Company] shall not declare or pay dividends to shareholders unless all outstanding debt obligations, including the loan under this Agreement, are fully satisfied.
Debt financing clause with step-up interest rates
This version includes a step-up in interest rates.
The interest rate on the debt will increase by [X]% per annum after [X] years from the loan issuance, to reflect the increased risk of lending as the loan term progresses.
Debt financing clause with amortization schedule
This version includes an amortization schedule.
The loan shall be repaid according to the following amortization schedule: [list of principal and interest payment amounts due at regular intervals, e.g., monthly or quarterly].
Debt financing clause with interest-only payments for initial period
This version includes interest-only payments for an initial period.
For the first [X] months of the loan term, the [Company] shall make interest-only payments, with principal payments commencing thereafter as per the amortization schedule.
Debt financing clause with fixed-rate debt
This version includes a fixed-rate structure.
The debt issued under this Agreement will bear a fixed interest rate of [X]% per annum, with no adjustments based on market conditions, for the entire loan term.
Debt financing clause with quarterly repayments
This version specifies quarterly repayments.
The debt will be repaid in equal quarterly installments, with the first payment due on [Date]. The final payment, including any accrued interest, is due on [Date].
Debt financing clause with interest rate floor
This version includes an interest rate floor.
The interest rate on the debt shall not be less than [X]% per annum, even if market conditions cause benchmark rates to fall below this level.
Debt financing clause with line of credit
This version includes a line of credit facility.
The [Company] is granted access to a line of credit up to [$X], with the ability to draw on the credit as needed, provided that the total outstanding balance does not exceed the credit limit.
Debt financing clause with terms for lender’s exit
This version includes terms for lender’s exit.
The lender has the right to exit the loan agreement by selling or transferring the debt obligations to another party, subject to the [Company]’s approval and compliance with securities laws.
Debt financing clause with provision for rollover debt
This version includes provisions for rollover debt.
The [Company] may elect to roll over any portion of the loan balance into a new debt instrument at the prevailing market terms, with lender consent.
Debt financing clause with annual debt review
This version includes an annual review of debt terms.
The terms of the debt, including the interest rate and repayment schedule, shall be reviewed annually by the lender and the [Company], and adjusted if necessary to reflect the [Company]’s financial performance.
Debt financing clause with loan guarantee from affiliates
This version includes a guarantee from affiliates.
The loan issued under this Agreement is guaranteed by the [Company]’s affiliates, including [list affiliates], who will be jointly responsible for repayment in the event of default.
Debt financing clause with early repayment discount
This version includes an early repayment discount.
If the [Company] repays the debt in full before the due date, a discount of [X]% will be applied to the outstanding principal, provided that all other terms of the loan are met.
Debt financing clause with provisions for cross-collateralization
This version includes cross-collateralization terms.
The loan issued under this Agreement shall be cross-collateralized with the [Company]’s other debts, meaning that default on any other debt obligations will trigger defaults on this loan as well.
Debt financing clause with monthly principal repayments
This version includes monthly principal repayments.
The loan will be repaid in equal monthly installments, with both principal and interest included in each payment. The first payment is due on [Date].
Debt financing clause with revolving facility limit
This version includes a revolving facility limit.
The [Company] may borrow, repay, and re-borrow under the revolving credit facility, provided that the total amount outstanding at any time does not exceed [$X].
Debt financing clause with lender approval for asset dispositions
This version requires lender approval for asset dispositions.
The [Company] shall not sell or dispose of any significant assets without the prior written approval of the lender, except for assets sold in the ordinary course of business.
Debt financing clause with higher interest rate for late payments
This version includes a higher interest rate for late payments.
If the [Company] fails to make a payment by the due date, the interest rate on the outstanding balance will increase by [X]% per annum for the period during which the payment is overdue.
Debt financing clause with borrower’s right to refinance
This version grants the borrower the right to refinance.
The [Company] has the right to refinance the loan at any time, provided that the refinancing terms are no less favorable than the original terms and are approved by the lender.
Debt financing clause with escrow account for loan repayment
This version includes an escrow account.
The [Company] shall establish an escrow account to fund the loan repayment, and a portion of the proceeds from [specific revenue sources, e.g., sales or investment income] will be automatically transferred into this account.
Debt financing clause with provisions for change in control
This version includes provisions for change in control.
In the event of a change in control of the [Company], the lender may accelerate the repayment of the loan or require the loan to be repaid in full within [X] days of the change.
Debt financing clause with loan for specific project financing
This version includes specific project financing terms.
The loan issued under this Agreement is intended to fund the specific project described in [Schedule X], and the [Company] shall use the funds exclusively for the purposes outlined in the project plan.
Debt financing clause with calculation of debt service coverage ratio
This version includes debt service coverage ratio calculation.
The [Company] agrees to maintain a debt service coverage ratio (DSCR) of at least [X] to ensure that sufficient cash flow is available to meet the loan repayment obligations.
Debt financing clause with maximum debt-to-equity ratio
This version includes a maximum debt-to-equity ratio.
The [Company] agrees to maintain a debt-to-equity ratio of no more than [X]% during the term of the loan. Failure to maintain this ratio will result in default and acceleration of the loan.
Debt financing clause with debt refinancing options
This version allows for refinancing options.
The [Company] has the option to refinance the debt at any time during the term of the loan, subject to the lender’s approval of the refinancing terms and the [Company]’s ability to meet the refinancing requirements.
Debt financing clause with provision for assignment of debt
This version allows for assignment of debt.
The lender may assign or transfer the debt obligations under this Agreement to a third party without the prior written consent of the [Company], provided that the assignee assumes all obligations of the lender.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.